Because you own or manage a construction contracting business, you have a legitimate desire to oversee every aspect of that business yourself. Yet even the savviest contractor sometimes makes mistakes, especially when it comes to bookkeeping.
There’s no question that maintaining accurate financials is a fundamental part of maintaining a healthy contracting business. And, being aware of the most common bookkeeping mistakes can save you from time loss, headaches, and even potential penalties.
Here are the top accounting mistakes made by construction contractors:
Improper handling of petty cash receipts
Trashing your “petty cash” receipts can add up to “larger cash” losses. Keeping these bits and pieces of receipts is helpful for many aspects of your business including budgeting, claiming tax deductions, and tracking overall cashflow. And, let’s not forget that having documentation in case of an audit removes much of the stress involved.
Improper comingling of business and personal finances
We’re not going to take too long here. The main thing we have to say on this subject is Don’t Do It!
Be sure to have separate accounts for your personal and your business affairs; otherwise it gets really messy! Besides the fact of not knowing exactly where your business stands at any given moment, there is that important aspect of paying someone to clean up the mess when tax time rolls around.
Improper or no backup system
Making sure all your financial information is backed up (duplicated) and stored in more than one location is of utmost importance. As you most likely know from experience, bat guano happens.
Beyond the day to day need to engage your financial records there is always the IRS to consider. This article from American Express found on their Open Forum page discusses some methods of recapturing required information necessary to appease the tax-man. What the article doesn’t address is the expense and time loss involved in the restoration process. And, it is the closing sentence in the article which is best to keep in mind if you wish to avoid the headache associated with restoring or retrieving lost information. It reads, “Business owners should seriously consider off-site storage of important documents.”
Improper classification of employees
Most construction contractors have some combination of full-time employees, part-time staff, and varying sets of subcontract teams. And, there are times when one person on your team may slide from one status to another as work demands. Keeping up with who gets a 1099 and who receives a W-2 makes a huge difference in your operating costs as well as your tax filing situation. Keeping compliant and avoiding misfiling taxes is imperative to the wellbeing of your construction company.
This article from Pro Construction Guide is full of helpful information concerning the who’s how’s and what’s of determining employee status.
Improper designation of bookkeeping duties
Thinking you, your spouse or your cousin’s next door neighbor are a good, cheap way of getting your accounting done can be a very costly mistake. Not many construction contractors are self-professed financial experts. Along the same line, while software and technology can compensate for a lack of bookkeeping expertise, it can only go so far. Plus, hiring an in-office person off the street who has no construction contracting bookkeeping experience looks much like the blind leading the blind when it is time to put your financial records to use in building your building business.
Leaving your business accounting to an experienced bookkeeper who’s already learned the ropes about your construction contractor bookkeeping needs allows you to gain much more clarity concerning your business’s past performance as well as gives you information concerning which “next steps” to take in growing your business.
Get in touch with Schulte and Schulte today to get your construction business’s financial records working for you, and best of all, you can dodge these mistakes altogether.